Next summer will mark five years since the Supreme Court ignited economic sales tax nexus with the South Dakota v. Wayfair, Inc et al decision. Many businesses are still trying to figure out how to manage the resulting obligations, but one thing’s clear:
Now every state with a sales tax has economic nexus.
Missouri becomes the last such state on Jan. 1, when it and its local jurisdictions will be able to collect a use tax from remote sellers who sell and deliver more than $100,000 in tangible goods to consumers in the state annually.
The Show Me State follows on the heels of Florida, where economic nexus kicked in mid-2021, with a revenue threshold of $100,000 of sales into the state during the previous calendar year. The Florida law also contains Marketplace Provider (aka “marketplace facilitator”) provisions that require platforms such as Amazon to collect and remit tax on sales made through the marketplace.
Economic nexus might also be creeping into at least one of the five states that don’t have a sales tax (they include Delaware, Montana, New Hampshire and Oregon). Several months ago, communities in Alaska began banding together to create the Alaska Remote Seller Sales Tax Commission to provide administration of sales tax collection and remittance.
That state’s governor has also said that he’s open to the idea of a state sales tax, especially if the money goes to the public in the form of the state’s resident dividend program. Proponents have studied many models for an Alaska sales tax, including seasonal sales tax and a year-round sales tax. Stay tuned.
What to know
There are three basics to know about economic nexus:
- State thresholds are not all the same. The South Dakota vs. Wayfair decision allowed the state to force out-of-state sellers to collect sales tax provided they had at least $100,000 in gross revenue or at least 200 transactions sourced into the state. Many states quickly followed with the same thresholds, but others have adjusted theirs to widely different revenue or transaction counts – some with no sales totals but with transaction limits, others with relatively small sales-total thresholds and still other states, such as New York and California, with large required sales totals.
- Some states fix thresholds by gross receipts, others by taxable sales. Taxable sales exclude sales for resale or otherwise exempt transactions as well as non-taxable transactions. Exemptions are transactions that are generally taxable but exempt for a certain reasons such as resale or purchase by an entity not subject to sales tax. Most states use gross sales, which includes those exempted or excluded sales, when determining economic thresholds.
Note that services may also increasingly create economic nexus in a growing number of states (Colorado might be next). Digital products can also create complex sale tax situations, though recently Maryland suffered a setback in court regarding its proposed taxing of digital ad sales.
- Economic nexus is in addition to physical presence rules. Having an office or employees or inventory in a state are forms of physical presence, which create nexus. You can have either a physical presence or reach economic nexus thresholds into a state to create a sales tax obligation – you do not need both.
A Pennsylvania state court did recently decree that an Amazon warehouse creates no physical nexus for a group of online sellers in that state. This decision may have physical nexus repercussions for the many online sellers who store inventory in Amazon warehouses nationwide. Stay tuned on this one, too.
If you’re looking for help determining your nexus footprint, understanding taxability of your products and/or services, or just want to get sales tax completely off your plate, it may be time to reach out to a sales tax expert. Get in touch to learn how we can help you stay ahead of sales tax and ensure you stay compliant.
To learn more, download our ebook The Complete Guide to Economic Nexus.